Government to pay Steward to be hospital facility manager in face-saving deal

Government will take back emphyteusis granted to Vitals and retain Steward Healthcare in new design-and-build contract for hospitals and management

Steward boss Armin Ernst (right) and health minister Chris Fearne at the opening of the Barts campus at the Gozo General Hospital. Both parties are attempting to redefine the hospitals privatisation contract.
Steward boss Armin Ernst (right) and health minister Chris Fearne at the opening of the Barts campus at the Gozo General Hospital. Both parties are attempting to redefine the hospitals privatisation contract.

The Maltese government is planning to ‘take back’ the three hospitals it granted in a controversial multi-million deal to the unknown Vitals Global Healthcare, in a face-saving deal it will broker with Steward Healthcare. 

Ministers were shown details of a plan by the health ministry that will lead to the stoppage of the emphyteutical deal, effectively returning the Gozo, St Luke’s and Karin Grech hospitals to the Maltese state. 

However, the Maltese government has agreed that Steward Healthcare, the American medical company that is currently running the three hospitals, will be facility managers and responsible for the upkeep and equipping of the hospitals. 

The deal has yet to enter the difficult phase of negotiating the multi-million fee that the Maltese government will pay Steward to maintain the buildings, develop the hospital facilities, manage the IT system for the hospitals, and procure the medical equipment. 

But the hospitals will be effectively return to the national health service, with all staff employed by the Maltese government and run as national hospitals. 

MaltaToday is informed that Steward will be granted the design-and-build contract for the hospitals, although the ultimate construction value is as yet unknown. 

At this stage, both parties will enter negotiations to determine the value of the contract. 

The Cabinet of ministers approved the memo for the way forward in January. The memo underlines the obligations of Steward to continue with its investment obligations in the hospital, but it will be the Maltese authorities to run the medical services. 

The Maltese government and the American company spent 2020 mapping a way forward for the deal that was originally brokered with former PM Joseph Muscat and former minister Konrad Mizzi. 

While Steward wanted more cash from the Maltese government to run the hospitals, the Abela administration was keen on undoing the PPP that had already encountered serious problems. 

The government only learnt late in the day that an agreement hammered out in August 2019 with former tourism minister Konrad Mizzi had given Steward Healthcare an “escape clause”, that turns any termination of its concession into a government default. 

The wording was part of an agreement for a €28 million loan from Bank of Valletta to Steward Healthcare, in which the government agreed that should the hospitals’ concession be terminated by a court of law – for whatever reason, and even if Steward is in breach of contract – such an event would be a government default. 

That would mean that all debts incurred by Steward would be passed on to the government, and the American company would still be liable for a €100 million contractual pay-out for its equity. Apart from placing the hospital lands under Steward’s control as guarantees for the debt, the loan agreement gave Steward unprecedented generosity by accepting that should the concession be rescinded by any law, public order or decision, judgement or decree – effectively any government or court decision – such an event will be “a non-rectifiable government of Malta event or default.” 

Government insiders baulked at the agreement, claiming the loan facility and Mizzi’s commitment to Steward was unknown to Cabinet colleagues. 

Already the concession obliged the Maltese taxpayer to pay hefty penalties should the government default on the concession: €100 million in cash and any lenders’ debt incurred by Steward. 

But should Steward default on the contract and not fulfil its obligations on the St Luke’s, Karin Grech, and Gozo hospitals, it would ‘only’ lose its equity – the investment it carried out during the PPP – although government would still have to pay the debt they incurred. 

Steward acquired the 30-year concession to run three state hospitals as a private concern in December 2017 from Vitals Global Healthcare, an unknown consortium of medical entrepreneurs granted the concession in 2015. But VGH racked up millions in debt with nothing to show for it, negotiating a buy-out of some €15 million from Steward. A large proportion of that cash was used to pay off Vitals’ main proponents, among them Ram Tumuluri and Mark Pawley. 


Vitals debts 

Vitals Global Healthcare was a financial mess in 2017. 

The mysterious group of investors had clinched a 30-year concession to run three Maltese state hospitals in a bogus ‘request for proposals’ tender run by Project Malta, the privatisation arm under former minister Konrad Mizzi’s purview. 

By mid-2017, VGH was still without the necessary banking finance to take its project forward. 

Despite the existence of multi-million debts, and now even the suspicion of inflated consultancy fees being charged to expenses, VGH’s two directors – the Canadian Ram Tumuluri and Briton Mark Pawley – were about to sign off on a very lucrative payday. 

In June 2017, Tumuluri and Pawley signed on a back-dated contract for their remuneration to bind Vitals to pay them exorbitant directors’ fees despite no sign of clear progress on the hospitals concession project. 

Tumuluri’s contract was that he be paid €600,000 annually, for the three years since the start of the concession – €1.8 million in total; as well as a €5 million bonus for the third year of the concession. 

Even Mark Edward Pawley, whose Bluestone Investments in the British Virgin Islands was set up as the ultimate beneficial owner of the Vitals group, was ensured a higher-than-normal di-rectors’ fee: €400,000 annually. The two directors hastily drew up a contract that would pay both of them €1 million each year, on a project which was now destined to fail. 

Vitals’ total liabilities exceeded assets by €27 million, with losses for that year alone amounting to €18 million. But Steward finally paid Pawley and Bluestone a €9 million settlement to take over the concession, which together with Tumuluri’s claim amount to just over €15 million paid to the former investors. 

Steward is also facing a claim in the British courts on a multi-million loan that American doctor Ambrish Gupta had made to Vitals’ ultimate beneficial owner – Bluestone Investments – when it was negotiating the concession for St Luke’s, Karin Grech and Gozo hospitals in January 2015. A dispute arose in September 2016 over Gupta’s share in the Vitals project. Gupta was accused of endangering the €200 million project, and the opposing sides lawyered up. A settlement was soon reached in December 2016 to pay MANV $10 million – $5 million was settled straight away, but another $5 million, at 8% interest, had to be paid up by February 2017. Gupta is chasing his money in a London court.